FCA sets out thinking on FSCS funding review

The FCA is considering a bigger role for providers and the introduction of a product levy as part of its review of how the Financial Services Compensation Scheme is funded.

In a letter to Treasury committee chairman Andrew Tyrie, published yesterday, FCA chief executive Andrew Bailey says work on the FSCS funding review is “well underway”. Bailey says the FCA expects to publish a consultation on FSCS funding at the end of November, with new rules coming into effect for 2018/19.

Bailey says the regulator is looking at a number of measures to the make the FSCS more sustainable.

These include smoothing firms’ levies by merging funding classes, or better use of the FSCS loan facility. The FCA says as part of this it is considering the responsibilities of providers for the way their products are distributed.

The FCA is also considering introducing protection for consumer credit activities, and changing FSCS compensation limits. Bailey says this may involve increasing compensation limits in certain areas, such as those who are drawing down their pensions “outside of traditional life insurance products”.

Risk-based levies related to products or services, capital reserves or the number of complaints are also under consideration, as is the industry-wide calls to bring in a product levy.

Bailey says the FCA is also examining the relationship between FSCS funding the professional indemnity insurance market, and whether a separate review is needed of PI cover.

Bailey says: “In undertaking this review, it remains the FCA’s goal that the FSCS is well-funded and sustainable, and that it supports confidence in financial firms and provides appropriate protections for consumers.

“To this end, we are working with the FSCS, Prudential Regulation Authority and the Treasury to examine whether there are practical ways to enhance the current funding model by improving affordability for firms without reducing consumer protections.”

In response to the letter, Tyrie says: “There has been talk of reviewing the FSCS levy since 2001, so this is not before time.

“I’m glad that the funding review is well underway, and that the scope of the review includes issues raised by the committee, such as the unpredictable nature of the levy.

“It is likely this will be raised when the committee sees Bailey next month.”